Brown’s Bill Could Kill Overdraft Reordering

The Consumer Financial Protection Bureau’s attempts to rein in overdraft reordering gained ammunition today when Sen. Sherrod Brown (D-Ohio), Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, announced he will soon introduce legislation that would grant the CFPB legal authority over the practice.

“Banks should play by the rules instead of purposefully ‘reordering’ their costumers’ debit card transactions so that they profit while consumers rack up costly penalties,” Brown said in a press conference in Cleveland. “My bill would put a stop to this by empowering the Consumer Financial Protection Bureau to crack down on banks that employ predatory practices. It also would allow the CFPB to establish fair guidelines to protect consumers and the banks and credit unions that play fair with their customers.”

The CFPB released a report June 11 that examined overdraft profit strategies like reordering and included statistics regarding credit union overdraft and NSF income. While the income statistics at face value appeared to be unflattering – the fees accounted for 51% of credit union fee income in 2012, and 78% for community banks and thrifts – the report added that community-based institutions derive more income from the fees than large banks because they serve fewer large commercial accounts and more consumer accounts.

According to a release from Brown’s office, the bill would limit overdraft strategies by requiring institutions to post transactions in “an objective way” that is clear to consumers; grant the CFPB the authority to monitor overdraft practices to determine if they are acting predatorily; and, establish guidelines that protect consumers.

Brown’s bill would also direct the CFPB to provide a safe harbor from litigation for institutions that follow the bureau’s overdraft system.